Dukes v. Wal-Mart is a win for employers

For employers, the Supreme Court’s June 20 ruling in Dukes v. Wal-Mart Stores was a decisive win. The decision in the closely watched sex discrimination case makes it substantially harder to certify a big class under Title VII, making it particularly important for large, nationwide employers.

The plaintiffs contended that Wal-Mart’s policies and practices resulted in discrimination in compensation and promotion against its women employees nationwide. But the high court found that the U.S. District Court for the Northern District of California in 2004 improperly certified the class estimated at 1.5 million current and former female Wal-Mart employees. That district court certification was upheld by a 9th Circuit panel in 2005 and a 6-5 en banc decision in 2010.

Employment attorneys viewed the case as a crucial test of the validity of bringing massive class actions, especially one claiming workers in a variety of job classifications working in thousands of locations across the country suffered the same discrimination. The Supreme Court split 5-4, with all of the female justices dissenting, in finding that the plaintiffs failed to prove commonality, a requirement for certifying a class under Rule 23(a) of the Federal Rules of Civil Procedure. In doing so, the court majority raised the bar, saying plaintiffs must have “significant proof” at the class certification stage that class members had “suffered the same injury” and that the company operated under a general policy of discrimination.

The court rejected the plaintiffs’ claim that by giving local managers discretion in pay and promotion decisions, Wal-Mart allowed gender stereotyping to prevail. It also dismissed their expert’s testimony and statistical analyses purporting to show class-wide discrimination, and said 120 affidavits from Wal-Mart employees were insufficient to prove bias against 1.5 million women. The court unanimously rejected certification of the plaintiffs’ claims for back pay under Rule 23(b)(2) and said such claims would have to meet the much stricter certification test of Rule23(b)(3).

The case is expected to have widespread impact on class actions brought under Title VII and collective actions brought under the Fair Labor Standards Act (FLSA). But employment defense attorneys caution against expecting the risk of class actions to disappear.

“The Supreme Court’s decision repositions the goal posts on the playing fields of how workplace class actions are structured, defended and litigated,” says Gerald Maatman, a partner at Seyfarth Shaw. “But I don’t think it will end the game. Employers are fooling themselves if they believe class actions are gone.”

Plaintiffs’ Options

Plaintiffs attorney David Sanford, partner in Sanford, Wittels and Heisler, agrees that Dukes changes the game but suggests that the plaintiffs bar has plenty of other options. “The court did not rule out class actions or discrimination claims,” he says.

“The court simply said the Wal-Mart plaintiffs could not proceed because they had a theory that was untenable. Plaintiffs in the future will have to construct and offer to the courts a different theory. There are other ways of doing this. One just has to be thoughtful, deal with the facts as they emerge in each case and tailor one’s arguments to the facts.”

Sanford predicts more focused regional, statewide or storewide class action discrimination cases for which commonality will be easier to establish. “As long as Title VII remains the law of the land, we will continue to have these cases,” he says.

But Sanford acknowledges that classes as large as the Wal-Mart case “will be very, very difficult” to certify. He advocates an amendment to the Civil Rights Act of 1964 to nullify the Dukes decision.

“It is critical for Congress to recognize that this conservative, male-majority court has taken a great step backward in the civil rights arena, and only through congressional action will we be able to level the playing field again,” he says.

Mass Actions

Maatman suggests Dukes will reduce the number of plaintiffs’ firms focusing on large discrimination class actions. Such cases are expensive for plaintiffs firms, usually requiring the hiring of one or more experts to testify at the certification stage at a cost of $250,000 to $1 million, according to Maatman. With the higher hurdles for certification required post-Dukes, Maatman says, “not as many plaintiffs firms will be willing to make that investment.”

Instead, he suggests, employers may be faced with “mass actions.” For example, the Dukes plaintiffs attorneys may file 12,000 individual discrimination lawsuits instead of one class action. By aggregating the cases, they can seek a settlement from the company as an alternative to defending thousands of individual cases.

Maatman also thinks the decision will accelerate the trend of the plaintiffs bar focusing on wage and hour collective actions under the FLSA rather than Title VII class actions.

“These [FLSA] cases don’t require an expert, they can be certified without much evidence, and construction of the cases is much cheaper than a discrimination case,” he says. “So If I am an employer, the way I pay my employees for wage and hour purposes may be more on the radar screen for a plaintiffs action than my employment practices under the Equal Employment Opportunity Act.”

Maatman and Littler Mendelson Shareholder Rob Friedman agree, however, that the defense bar will quickly seek to extend the high class certification standard of Dukes to FLSA cases.

“The teachings of Dukes apply with great force to FLSA collective actions because in FLSA cases, plaintiffs attorneys often use limited evidence and sampling and try to extrapolate throughout the class,” just as the Dukes plaintiffs did, Friedman says.

Employer Road Map

For employers, Dukes is a reminder that carefully crafted companywide policies offer protection against class-wide litigation. The Supreme Court noted Wal-Mart’s anti-discrimination policy in rejecting the plaintiffs claim of a corporate culture that fostered gender stereotypes.

“Now is a good time for inside counsel and human resources professionals to look at their [discrimination and wage and hour] policies and make sure they are compliant,” Friedman says. “It’s critical to have bonafide, lawful policies that can be used to show the company’s culture is one of compliance.”

Maatman adds that such a culture can be reinforced with incentives. “Say to managers, ‘You will be appraised on your track record in maximizing opportunities for women and minorities, and whether you facilitated the investigation and remediation of any complaints.’”

By doing so, a company can create a set of positive facts to counter any claims of systemic discrimination.